SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
--------------
For Quarter Ended March 31, 1996
Commission file number 1-8223
NATIONAL GAS & OIL COMPANY
(Exact name of registrant)
Ohio 31-1004640
(State) (I.R.S. Employer
Identification No.)
1500 Granville Road, Newark, Ohio 43055
(Address of principal executive office)
Registrant's telephone number (614) 344-2102
Area Code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuers' classes of
common stock, as of the close of the period covered by this report (applicable
only to corporate issuers).
$1.00 Par Value - Common 6,858,089 shares
Page 1 of 14
<PAGE>
FORM 10-Q
QUARTER ENDED
MARCH 31, 1996
NATIONAL GAS & OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31,
1996 1995
OPERATING REVENUES:
Gas sales .................................. $10,871,904 $10,533,731
Transportation ............................. 1,640,525 1,691,300
Oil and gas production ..................... 10,464,382 5,806,393
----------- -----------
TOTAL OPERATING REVENUES ......................... 22,976,811 18,031,424
----------- -----------
OPERATING EXPENSES:
Purchased gas - gas sales .................. 5,496,412 6,124,433
Purchased gas - oil and gas production ..... 8,899,536 4,290,632
Operation and maintenance .................. 2,202,409 2,243,976
Depreciation, depletion and amortization ... 911,969 883,749
Taxes other than income .................... 1,101,985 1,038,778
----------- -----------
TOTAL OPERATING EXPENSES ......................... 18,612,311 14,581,568
----------- -----------
OPERATING INCOME ................................. 4,364,500 3,449,856
----------- -----------
Other income ..................................... 90,983 31,147
Interest expense ................................. 234,818 269,595
Federal income taxes ............................. 1,376,240 1,047,918
----------- -----------
NET INCOME ....................................... $ 2,844,425 $ 2,163,490
=========== ===========
Net income per share ............................. $ 0.41 $ 0.32
=========== ===========
Average number of shares outstanding ............. 6,859,156 6,860,589
=========== ===========
Cash dividend per share .......................... $ 0.06 $ 0.06
=========== ===========
The per share amounts and the average number of shares outstanding have been
restated to reflect the purchase of Treasury shares in February and March 1996
and the three percent stock dividend issued in December 1995.
The accompanying notes are an integral part of these statements.
2
<PAGE>
FORM 10-Q
QUARTER ENDED
MARCH 31, 1996
NATIONAL GAS & OIL COMPANY
CONSOLIDATED BALANCE SHEET
ASSETS
March 31, December 31,
1996 1995
PROPERTY, PLANT AND EQUIPMENT
Gas utility properties ................... $ 63,638,857 $62,444,717
Less - Accumulated depreciation .......... 22,686,375 22,199,392
------------ -----------
40,952,482 40,245,325
Oil and gas properties,
successful efforts ..................... 21,355,357 21,218,605
Less - Accumulated depreciation,
depletion and amortization ............. 7,426,784 7,304,416
------------ -----------
13,928,573 13,914,189
Other - net .............................. 5,293,350 5,492,265
------------ -----------
Total property, plant and equipment ........ 60,174,405 59,651,779
CURRENT ASSETS:
Cash and cash equivalents ................ (235,639) 448,250
Short-term investments ................... 2,030,161 782,788
Accounts receivable - net ................ 14,797,793 10,285,798
Gas in underground storage ............... (207,139) 2,321,552
Materials and supplies,
at average cost ........................ 988,773 980,787
Prepaid taxes ............................ 2,276,193 2,896,527
Other .................................... 868,328 504,340
Total current assets ....................... 20,518,470 18,220,042
------------ -----------
OTHER ASSETS:
Other .................................... 1,412,701 1,558,481
------------ -----------
Total other assets ......................... 1,412,701 1,558,481
------------ -----------
TOTAL ASSETS ............................... $ 82,105,576 $79,430,302
============ ===========
The accompanying notes are an integral part of these statements.
3
<PAGE>
FORM 10-Q
QUARTER ENDED
MARCH 31, 1996
NATIONAL GAS & OIL COMPANY
CONSOLIDATED BALANCE SHEET
CAPITALIZATION AND LIABILITIES
March 31, December 31,
1996 1995
CAPITALIZATION:
Shareholders' equity--
Common stock, $1 par value,
authorized 14,000,000 shares
issued 7,018,512 and 6,819,400
shares respectively .................. $ 7,018,512 $ 7,018,512
Paid in capital ........................ 31,353,832 31,353,831
Retained earnings ........................ 5,896,110 3,848,185
Treasury stock, 160,423 shares
at cost ................................ (1,573,818) (1,550,509)
------------ ------------
Total shareholders' equity ............. 42,694,636 40,670,019
------------ ------------
Long-term debt ........................... 10,405,517 11,079,442
Total capitalization ....................... 53,100,153 51,749,461
------------ ------------
CURRENT LIABILITIES:
Current maturities of long-term debt ..... 881,294 877,264
Short-term loans ......................... 0 1,350,000
Accounts payable ......................... 8,199,572 5,491,004
Accrued income and other taxes ........... 4,198,597 3,990,295
Refundable gas cost ...................... 552,658 1,348,047
LIFO inventory reserve ................... 820,519 0
Other .................................... 1,404,542 1,947,816
------------ ------------
Total current liabilities .................. 16,057,182 15,004,426
------------ ------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Federal income taxes ..................... 8,135,482 8,112,490
Investment tax credits ................... 1,059,717 1,084,188
Accrued transition costs ................. 276,866 1,035,895
Health care and other .................... 3,476,176 2,443,842
Total deferred credits and
other liabilities ........................ 12,948,241 12,676,415
------------ ------------
TOTAL CAPITALIZATION AND LIABILITIES ....... $ 82,105,576 $ 79,430,302
============ ============
The accompanying notes are an integral part of these statements.
4
<PAGE>
FORM 10-Q
QUARTER ENDED
MARCH 31, 1996
NATIONAL GAS & OIL COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
1996 1995
________ ________
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................. $ 2,844,424 $ 2,163,490
Reconciliation of net income to net
cash provided by operating activities
Depreciation, depletion and
amortization ......................... 935,922 938,957
Deferred income taxes ................. 111,332 (946,198)
Other, net ............................ 49,291 69,356
Change in assets and liabilities:
Accounts receivable ................... (4,617,563) (550,062)
Short-term investments ................ (1,247,372) 200,963
Gas in underground storage and
LIFO reserve ........................ 2,528,691 2,988,935
Materials and supplies ................ (7,986) (66,276)
Deferred gas costs .................... (781,900) 1,168,350
Accounts payable ...................... 2,708,568 (279,640)
Prepaid taxes ......................... 620,334 615,004
Other, net ............................ 92,303 720,988
----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES ....................... 3,236,044 7,023,867
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ....................... (1,474,491) (872,302)
Salvage on retirement of facilities ........ 9,288 25,685
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES ........ (1,465,203) (846,617)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments of long-term debt ....... (219,894) (369,217)
Proceeds from long-term debt ............... -- --
Net borrowings under short-term
bank loans ............................... (1,800,000) (3,050,000)
Dividends paid ............................. (411,527) (399,689)
Purchase of treasury stock ................. (23,309) --
----------- -----------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES ......................... (2,454,730) (3,818,906)
----------- -----------
NET INCREASE IN CASH & CASH EQUIVALENTS ...... (683,889) 2,358,344
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR .................................... 448,250 1,271,186
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD ..................................... $ (235,639) $ 3,629,530
=========== ===========
The accompanying notes are an integral part of these statements.
5
<PAGE>
FORM 10-Q
QUARTER ENDED
MARCH 31, 1996
NATIONAL GAS & OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying consolidated balance sheet, related statement of cash
flows and the comparative income statement have been prepared by National Gas
& Oil Company (the Company) without audit by independent accountants. In the
opinion of the Company, all adjustments necessary for a fair presentation of
its consolidated results of operation at March 31, 1996 and 1995 have been
included, and were normal recurring adjustments. Certain minor
reclassifications have been made for comparative purposes.
2. Gas in underground storage under the LIFO method is determined using
calendar year-end quantities and costs. LIFO inventory is estimated at interim
periods. At March 31, 1996, gas in underground storage decreased 786,507 Mcf
from December 31, 1995, due to the seasonal nature of the Company's business,
which required a withdrawal of cushion gas during the period. Cushion gas is
accounted for as Gas Utility Properties. That nature is injecting natural gas
into underground storage in the summer and withdrawing the gas in the winter
during high demand periods. The reserve for LIFO inventory of $820,519 is the
difference between the cost to replace this temporary reduction and the LIFO
cost assigned to these volumes.
3. Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Three Months Ended March 31,
1996 1995
------ ------
Income taxes $100,000 $450,000
Interest $328,675 $393,717
6
<PAGE>
FORM 10-Q
QUARTER ENDED
MARCH 31, 1996
NATIONAL GAS & OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated Results
Operating revenues have been separated into revenues generated
from the sale and transportation of natural gas by National Gas & Oil
Corporation (National Gas) and Producers Gas Sales, Inc. (Producers) and the
sale of oil and gas produced and purchased by NGO Development Corporation (NGO
Development). The revenues of the holding company, National Gas & Oil Company,
and other income from all subsidiaries are included under other income.
Consolidated revenue of $22,977,000 in the first quarter of 1996
increased by 27 percent from first quarter 1995 consolidated revenue. The
major change in revenue can be attributed to increased gas marketing activity
by NGO Development and increased gas sales by National Gas due to colder
weather in the first quarter of 1996.
Net income in the first quarter of 1996 amounted to $2,844,000, an
increase of $681,000 or 31 percent from the first quarter of 1995. The
increase is attributed to increased margins from residential and commercial
gas sales and increased margins related to gas marketing activities.
Net income per common share in the first quarter of 1996 was $.41
as compared to $.32 in the first quarter of 1995.
Gas Sales and Transportation
Operating revenues associated with this segment of the business
increased by $287,000 or 2 percent in the first quarter of 1996 as compared to
the first quarter of 1995 due to an increase in the volume of gas sold in the
gas sales segment as a result of the colder weather and due to a decrease in
the price of gas sold as a result of a lower gas cost. Additionally, Producers
Gas revenues decreased due to a loss in incremental throughput.
Net income of the gas sales and transportation segment during the
first quarter increased $459,000 as compared to net income in the first
quarter of 1995.
7
<PAGE>
Volumes of gas sold and transported to various customer classes
for the first three months decreased 4% over the first three months of 1995.
Three Months Ended March 31,
Gas Throughput (Mcf) 1996 1995
------------------------ --------- -------
Gas Sales:
Industrial 31,675 30,508
Residential 1,157,023 995,794
Commercial 500,196 425,520
--------- ---------
Total Gas Sales 1,688,894 1,451,822
Transportation 2,332,010 2,751,482
--------- ---------
Total Gas Throughput 4,020,904 4,203,304
========= =========
Operation and maintenance expenditures have increased 2% during
the first quarter as compared to the first quarter of
1995 primarily due to increased labor costs.
Oil and Gas Sales
Operating revenues from the oil and gas sales segment increased
$4,658,000 in the first quarter of 1996 as compared to the first quarter of
1995. The increase is due to increased gas marketing sales by NGO Development
as a result of increased market activity. Operating expenses for this business
segment have decreased with purchased gas expense increasing to correspond
with the increase in gas marketing revenue.
Net income for the period increased $160,572 primarily due to
increased margins from gas marketing activity and reduction of operating
expenses.
General
The first quarter 1996 decrease in interest expense as compared to
the first quarter 1995 is the result of decreased borrowing by National Gas
and NGO Development.
Federal Income Taxes
The change in federal income tax expense for the quarter reflects
the changes in taxable income for the consolidated companies.
8
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
Capital Resources
The primary sources and uses of cash during the three month period
ending March 31 are summarized in the following condensed cash flow statement:
Sources and (Uses) of Cash
1996 1995
------ ------
Provided by Operating Activities $ 3,236,044 $ 7,023,867
Capital Expenditures, net of salvage (1,465,203) (846,617)
Net Borrowings (2,019,894) (3,419,217)
Common Dividends (411,527) (399,689)
Purchase of Treasury Stock (23,309) 0
------------ -----------
Net Increase/(Decrease) in Cash
& Cash Equivalents $ (683,889) $ 2,358,344
============ ===========
Cash provided by operating activities consists of net income and
noncash items including depreciation, depletion, amortization and deferred
income taxes. Additionally, changes in working capital are also included in
cash provided by operating activities. The Company expects that internally
generated cash and cash reserves, coupled with seasonal short-term borrowings,
will continue to be sufficient to satisfy the operating, normal capital
expenditure and dividend requirements of the Company's existing operations in
the near future.
Capital Expenditures
In the first quarter of 1996 the gas sales and transportation
segment accounted for 82 percent of the total capital expenditures. The funds
were expended primarily for expansion and upgrading of existing pipeline
systems. The oil and gas sales segment accounted for 18 percent which was
primarily used for the development and/or completion of various interest in
oil and gas wells.
Capital expenditures vary significantly by quarter. The Company
estimates that normal capital expenditures in 1996 to support existing
operations will be approximately $4,600,000. The construction and drilling
programs are continually evaluated and actual expenditures may be more or
less.
Financing and Liquidity
The Company continually assesses various alternatives for
expanding its business, including the acquisition of other business entities.
9
<PAGE>
As of March 31, 1996, the Company and its subsidiaries had
short-term lines of credit with various banks aggregating in excess of
$6,000,000, the upper limit on short-term borrowing imposed by the Board of
Directors. The terms of each borrowing under the lines of credit are
negotiated at the time the funds are requested with interest rates ranging
from 6.312% to 8.500%.
During the first quarter, the Company utilized these credit lines and as of
March 31, 1996, all short-term draws were repaid. These funds were used
primarily by National Gas to satisfy seasonal working capital requirements.
The Company anticipates that it will utilize its credit lines for additional
funds during the third and fourth quarters of 1996.
Additionally, the Company and all of its subsidiaries, except
National Gas, have a $3 million revolving line of credit which expires in
February 1997. This committed credit line is unsecured and may be utilized by
any of the subsidiaries, except National Gas. NGO Development had $450,000
outstanding at December 31, 1995. As of March 31, 1996, all loans have been
repaid.
In March 1994, National Gas issued $6 million of Senior Unsecured
Notes in a private placement to a qualified investor.
The proceeds were utilized by National Gas to fund various capital projects
in 1994 and 1995, including the $3.5 million pipeline project to provide gas
service to a new customer. The notes bear a fixed interest rate of 6.63%, have
a maturity of 15 years and an average life of 9 years. The notes carry a 100%
guaranty by the Company. The Company is not aware of any material events or
uncertainties which would materially limit or restrict its ability to secure
additional funds from external sources in either the debt or equity markets.
Dividends
The Company paid cash dividends of $411,527 and $399,689 during
the three months ended March 31, 1996 and 1995, respectively. Presently, there
are no restrictions on the payment of dividends, as long as the Company is not
in default of the terms in its long-term loans. Dividend policy is established
by the Company's Board of Directors. The Board's decision takes into
consideration results of operations and retained earnings of the Company.
There are currently no restrictions on the present ability to pay such
dividends.
Effects of Inflation
All of the Company's long-term bank loans accrue interest at a
fluctuating rate equal to either the bank's prime rate or to a rate tied to
the London Interbank Offered Rate (LIBOR). Because of the fluctuating rate,
the Company is exposed to increases in interest expense should rates increase
due to inflation.
10
<PAGE>
During the third quarter of 1993, National Gas analyzed the need
for additional base rate increases and decided to apply for rate increases to
cover increases in operating expenses. Rate increases over a three year period
have been successfully negotiated with all municipalities served by National
Gas.
11
<PAGE>
FORM 10-Q
QUARTER ENDED
MARCH 31, 1996
NATIONAL GAS & OIL COMPANY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Default upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K.
On February 26, 1996, the Registrant filed a Report on Form
8-K, Item 5. pursuant to the adoption of a Shareholder Rights Plan
designed to protect shareholders from attempts to acquire control of
the Company at an inadequate price. The Plan provides for the
distribution of one Preferred Stock Purchase Right as a dividend for
each outstanding common share. Each right entitles shareholders to
buy one five-hundredth of a share of a new series of preferred
shares for $34.00. Each one five-hundredth of a preferred share is
intended to be the practical economic equivalent of a common share.
12
The rights may be exercised only if a person or group acquires 15
percent or more of the Company's common shares. The Company may
redeem the rights at $0.01 (one cent) each at any time before a
buyer acquires 15 percent of the Company's common shares, and
thereafter under certain circumstances. The dividend distribution
will be payable to shareholders of record on March 1, 1996. The
rights expire on March 1, 2006. Under certain circumstances,
including the acquisition of 15 percent of the Company's stock, all
rights holders except the acquirer may purchase the Company's stock
having a value of twice the exercise price of the rights. If the
Company is acquired in a merger after the acquisition of 15 percent
of its stock, rights holders may purchase the acquirer's shares at a
similar discount.
13
<PAGE>
FORM 10-Q
QUARTER ENDED
MARCH 31, 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL GAS & OIL COMPANY
(Registrant)
Date: May 14, 1996 ____________________________________
Patrick J. McGonagle
President and
Chief Executive Officer
Date: May 14, 1996 ____________________________________
John B. Denison
Vice President, Secretary and
Acting Principal Financial Officer
14
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<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 40,952,375
<OTHER-PROPERTY-AND-INVEST> 19,221,923
<TOTAL-CURRENT-ASSETS> 20,518,470
<TOTAL-DEFERRED-CHARGES> 1,412,701
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 82,105,576
<COMMON> 7,018,512
<CAPITAL-SURPLUS-PAID-IN> 31,353,832
<RETAINED-EARNINGS> 5,896,110
<TOTAL-COMMON-STOCKHOLDERS-EQ> 42,694,636
0
0
<LONG-TERM-DEBT-NET> 10,405,517
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 881,294
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 28,124,129
<TOT-CAPITALIZATION-AND-LIAB> 82,105,576
<GROSS-OPERATING-REVENUE> 22,976,811
<INCOME-TAX-EXPENSE> 1,376,240
<OTHER-OPERATING-EXPENSES> 18,612,311
<TOTAL-OPERATING-EXPENSES> 19,988,551
<OPERATING-INCOME-LOSS> 4,364,500
<OTHER-INCOME-NET> 90,983
<INCOME-BEFORE-INTEREST-EXPEN> 3,079,243
<TOTAL-INTEREST-EXPENSE> 234,818
<NET-INCOME> 2,844,425
0
<EARNINGS-AVAILABLE-FOR-COMM> 2,844,425
<COMMON-STOCK-DIVIDENDS> 411,527
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 3,236,044
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
</TABLE>
